The Hindu Business Line : Deficit in power distribution cos — Karnataka opts for management contracts over divestment

Sources said this was the only option since all the four distribution companies were in chronic deficit. There was little possibility of the State Government realising value in divestment of equity in these circles.

Initially, the purpose behind the unbundling was to initiate divestment in all the four circles. Even if divested, the sources said, the State Government would have to continue to support the circles through budgetary subsidies, to sustain the minimum return expectations of potential investors.

Even in Bangalore, considered the most lucrative circle in the State, the revenue deficit estimated for the current financial year (2005-06) is Rs 460.60 crore without a tariff revision. This revenue deficit has been estimated on the basis of a power purchase cost of Rs 4,081 crore for 16,013 million units (mu) and a tariff realisation of Rs 4,188 crore. The realisation factored in a 22-per cent distribution loss, implying that at least 3,500 mu would be transmission losses. In revenue terms, this would translate into Rs 1,165.50 crore assuming a tariff of Rs 3.33 paise per unit. These losses would imply that the net worth of the Bangalore circle stood eroded. Without the tariff revision, the negative net worth for the current fiscal year has been projected at Rs 185 crore. This would in turn imply a negative earning per share of Rs 22.83.

The sources said, the proposed 11 per cent tariff hike was intended to correct the situation and ensure that the EPS remained in positive territory, the sources said, since the average tariff would rise to Rs 3.70 per unit.

This tariff projected for the year in the expected revenue charges submitted to the State Electricity Regulatory Commission included a transmission charge of 18.67 paise a unit.

However, the sources said, that periodic tariff hikes were not sustainable.

This was because, since the beginning of this decade, tariffs have been hiked by more than 62 per cent, but it has still not resulted in correcting the revenue deficits of any of the circles or reducing the subsidies.

The sources said one of the major factors behind the large revenue deficits, besides distribution loss, was also on account of large under-recoveries. BESCom alone currently had a receivables equivalent to Rs 1,480 crore.

These receivables have increased by 98 per cent since 2003-04. In the remaining three circles of the State — Mangalore, Hubli and Gulbarga — the situation was identical the sources said.

The sources said the only option, therefore, was to resort to management contracts, to cut losses and improve revenue receipts.

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